Planning for a Grandchild's Future: Choosing the Right College Savings Strategy in 2026
College has become one of the largest financial commitments many families face, with tuition continuing to outpace inflation in many cases. For retirees and grandparents, helping children or grandchildren with future education expenses can be a meaningful part of their legacy, but it is important to weigh the impacts of your own financial goals, desire for flexibility, and even portability. Today, families have more college savings options than ever, making it important to choose the right strategy based on your goals and values.
Rising Education Costs Make Planning More Important Than Ever
Just like all aspects of financial planning, when thinking ahead for education funding, it is not entirely about predicting future tuition. Instead, it is about giving yourself and your family more choices. Over the past decade, college costs have climbed dramatically. Often, education is the second-largest expense for families, after purchasing a home. Starting early allows more time for the investment to grow and provides greater flexibility.
Which College Savings Account is Right for Your Goals?
Many wonder what the “best” college savings account may be. The short answer is there are different tools for different objectives. Whether you are wanting to set up a child or grandchild for education savings, long-term wealth building, or contribute to an account with the most flexibility, these goals make a difference when it comes to selecting an account type. As with retirement, it is often a blend of different accounts that should be considered. Below are some of the most common savings account types that can be used for a child, as well as considerations to be aware of when it comes to utilizing each type for education funding and beyond.
Are you prepared for taxes in retirement?
For more long-term tax planning strategies, claim your FREE copy of Brandon’s book, Retire by Design!
529 Plan
Best for education-specific savings goals
When thinking about college savings options, the first account that comes to mind is often a 529 plan. These common savings vehicles offer tax-free growth and tax-free withdrawals for qualified education expenses. If your family’s needs change in the future, the beneficiary of the 529 account type can often be changed.
Often, challenges arise when 529 plans are not utilized for education costs (tuition, room and board, or trade schools) specifically. Generally, there may be options to offset scholarships without penalties. If the beneficiary does not use all the funds (e.g., they do not go to college), you can roll over up to a lifetime maximum of $35,000 from the 529 plan into a Roth IRA for the beneficiary. To qualify, several requirements must be met, including that the account has been open for at least 15 years.
Sometimes the question comes up, “What happens to college savings that aren’t used?” Fortunately, funds in 529 accounts are often able to be used for a broader range of qualified education expenses than most realize. While funds are generally utilized for college tuition, room and board, or trade schools, the savings can be used even earlier than the college years. Up to $10,000 per year can be used towards eligible K-12 public, private, or religious school expenses. For college aged students, the funds can be used for apprenticeship programs, graduate and professional school, community college, and even to cover technology, such as a computer or laptop, tablet, or printer, and for books and course materials.
Trump Account
Best for long-term wealth building, especially when balanced with a tax-free growth vehicle
The newest savings vehicle for children is the Trump Account, introduced in July 2026. The Trump Account aims to be a long-term wealth building option for children. The account structure is designed to be like a retirement account, with different tax treatments and contribution limits when compared to the 529 Plan.
It is important to note that taxation works like a Traditional IRA in the sense that earnings are tax deferred. While these accounts do have their place in a financial plan, you may want to balance this option with a tax-free growth vehicle to maximize the long-term benefits, especially depending on how your family plans to utilize these funds. The Trump Account is meant to be a long-term investment account for children under 18, and withdrawals before age 59 ½ can carry taxes and penalties. However, for those wanting to use these funds towards higher education expenses, specific exemptions exist like in a traditional IRA.
Trump Accounts offer a free $1,000 deposit for children born on January 1, 2025, through December 31, 2028. To claim the initial deposit and set up the account, a parent or guardian must make the required election, which can be done through submitting Form 4547 through their IRS account at IRS.gov or through the official Trump Accounts platform. If eligible, you must elect to receive the $1,000 federal deposit. The contribution limit for the account for families and others who wish to contribute is $5,000 per year in 2026, and contributions from individuals are generally made with after-tax dollars. Employers may be able to contribute up to $2,500 per year toward the same limit. Funds can be accessed by the child at the age of majority, when the Trump account automatically becomes a traditional IRA.
Custodial Brokerage (UGMA/UTMA) Account
Best for those who desire maximum flexibility with invested funds
A custodial brokerage account offers the most flexibility when it comes to gifting and the most control when it comes to investing. It has fewer restrictions on how funds may be used; however, it does not offer the same education-specific tax advantages of a 529 plan.
While flexible, annual gifting limits do apply when it comes to contributions. In 2026, that gifting limit is $19,000 per year, or $38,000 for couples, without triggering the reporting requirements. It is also important to note that the funds go directly to the child at the age of majority. Once the child reaches the age of majority, they generally gain control of the account and can use the funds at their discretion, provided it benefits the child directly.
Custodial IRA (Child IRA)
Best for situations where a child has earned income and there is a desire to build long-term wealth
A custodial IRA, sometimes referred to as a child IRA, is another option assuming the child has earned income. Earned income can be from a W-2 job or legitimate self-employment, such as babysitting or lawn mowing, to qualify. A custodial IRA is a retirement account opened and managed by an adult (typically a parent or guardian) on behalf of a minor, and is generally intended for retirement savings rather than college or other education funds.
A custodial IRA can either be Roth or Traditional. This account type can be a great way to get a very early head start for a child, and the long-term tax benefits of a Roth account type, specifically, can be significant as they receive tax free growth for 50+ years! The limits for contribution limits follow the standard annual retirement plan limits (https://www.mainsailfg.com/posts/retirement-plan-contribution-limits-2026), or max out based on the minor’s total earned income for the year. Keep in mind, because of the long-term tax benefits of a Roth IRA, often the custodial Roth IRA may be a more powerful option of the two for their future benefit.
Curious about your income tax rate, deductions, and contribution limits?
Our complimentary 2025-2026 tax table is a handy guide to these and more figures you need to know as you plan for next tax season!
Helping the Next Generation with Purpose
Many heavy savers may reach a point where they ask, “How can I use my resources to make the greatest impact?” Education funding is one meaningful way to invest in children and grandchildren.
Before choosing an account, consider your goals and questions such as:
Do you want to specifically support education?
Do you want flexibility if your child or grandchild chooses a different path?
Are you hoping to help them build long-term wealth?
As you consider your values, it is also important to consider and discuss the tradeoffs that come with education funding and identify what these tradeoffs may mean for you. Some examples include being able to take an earlier retirement, creating a larger future inheritance for children and grandchildren, or utilizing longer-term tax advantages for existing invested funds.
Start the Conversation Early
Most of all, it is important to start the college savings process early. Not only will it allow the savings to grow for longer, but it will also allow for more flexibility and options once the child reaches the age of majority.
Discussing expectations, who plans to contribute, and evaluating available savings vehicles with family members who have an interest in making an impact on the child is key. As the child gets closer to college age, expert Heidi King of College Inside Track suggests “sit[ting] down during sophomore year… [that provides] a lot of runway to adjust for questions like: What does college cost? Where are we looking at schools? How much do we have saved?”
Conclusion
College planning is about much more than paying tuition. Whether you're saving for your own children or hoping to help future grandchildren, choosing the right savings strategy starts with understanding your goals. By balancing education funding with your own retirement, tax needs and taking advantage of the tools available today, you can help support the next generation while protecting your own financial future.